Australian Housing Market Outlook for 2025: What You Need to Know
With Leigh Martinuzzi MPG – eXp Australia
The Australian property market continues to evolve, with supply and demand imbalances shaping the landscape for both buyers and renters. According to the latest Matusik Housing Market Overview & Outlook (January 2025), we’re heading into another year of growth, but affordability pressures and supply constraints remain key challenges.
So, what’s happening in the market, and what can we expect over the next 12 months? Here’s a breakdown of the key insights from Matusik.
Property Prices on the Rise
Despite rising interest rates in recent years, property prices continue to climb. Since 2000:
- Detached house values have increased by 3.6x, averaging 6.9% annual growth.
- Apartments and townhouses have risen by 2.5x, averaging 5.5% annual growth.
This upward trend is expected to continue, with property values forecast to grow 5% to 8% over the next 12 months. The key driver? A chronic undersupply of homes combined with increasing demand.
The Rental Market Is Tighter Than Ever
If you thought renting was tough in 2024, brace yourself, competition is heating up even more.
- Vacancy rates remain at a low 1.3%, meaning there are very few available rental properties.
- Median weekly rents for 3-bedroom houses have doubled since 2000, averaging 4.7% annual growth.
- Rental prices are expected to increase by 8% to 15% in 2025, driven by housing shortages and high demand.
The trend of multiple tenants per property is also becoming the new norm as affordability pressures mount.
Why Are Prices & Rents Still Going Up?
Several key factors are fuelling Australia’s property price and rental growth:
- Demand from wealthy overseas buyers – Australia remains a top destination for high-net-worth individuals.
- High construction costs, Labour shortages, rising material prices, and supply chain issues continue to push up building costs.
- A severe undersupply of new homes: New dwelling completions (172,000 per year) are falling short of demand (187,000 per year).
In short, there aren’t enough homes, and the cost to build new ones is rising.
Population Growth & Housing Demand
Australia’s growing population is putting additional pressure on the housing market.
- 395,000 new people are expected to migrate annually, with international students and skilled workers leading the charge.
- Net migration accounts for 24% of total population growth, while overseas students make up 59%.
Without immigration, Australia’s housing demand would be far lower. However, with continued high migration rates, the demand for housing, both for sale and rental will remain strong.
Interest Rates & Economic Outlook
- Good news for borrowers, interest rates are set to start falling in mid-2025.
- The RBA is expected to introduce up to six rate cuts (0.25% each) between 2025 and 2026.
- Mortgage rates will still remain above 5% as the new norm.
- Unemployment is forecast to settle between 4.5% and 5%, while inflation is expected to remain between 3% and 4%.
Lower interest rates could inject more momentum into the housing market, making it easier for buyers to secure finance. However, supply constraints will continue to be a major challenge.
What’s Next for the Australian Housing Market?
The next 12 months are shaping up to be another strong but challenging year for property.
- Property prices are forecast to rise by 5% to 8%.
- Rents are set to increase by 8% to 15%.
- Interest rates will start to ease, but affordability pressures remain.
- Housing undersupply will continue to drive market competition.
While all signs point to ongoing growth, potential risks remain, including a local recession, geopolitical tensions, or another global crisis which could shift the outlook.
For now, Australia’s housing market remains in a strong position, with demand continuing to outstrip supply. If you’re considering buying, selling, or investing, now is the time to be strategic and well-informed.
Need expert guidance on your property journey? Let’s chat.
